Bill Jamieson: A Budget that could give Brown a fighting chance

Published on Thursday 11 March 2010 20:37

IT'S not over till it's over – and it may not be over even then. The dramatic narrowing of the Conservatives' poll lead has given Labour new hope where before there was a near total resignation to the prospect of defeat.

The likelihood is still of a majority of votes for the Conservatives and a coalition in which they are the dominant partner. But Labour can still rob David Cameron of the prize through a Budget on 24 March that shows conviction and vision and which puts those vague Tory plans under a searching spotlight.

Until a few weeks ago, it was thought that Chancellor Alistair Darling had no shots left in the locker. Indeed, not only was the locker stripped bare but it was also hard to gain entry for the weight of all the IOUs piled up on the floor.

But the Chancellor does have some wriggle room to put in place measures to boost the economy and at least provide some hope as commentators fret about an economic relapse and double-dip recession. The bank bonus tax is estimated to have brought in 2.5 billion into the Treasury coffers – three times more than expected. And the lower than expected level of unemployment compared with Treasury forecasts last year also creates a little more fiscal space.

But the great boost the Chancellor can give to Prime Minister Gordon Brown is less fiscal than rhetorical. He needs to convince sceptical voters – and the markets – not only that the plan to halve the deficit over four years is credible but also that there are real, practical and positive stepping stones on the way.

I am not, and have never been, a Gordon Brown fan. But I have all but given up on the confusion and ineptitude that has characterised the Opposition's approach to deficit and debt. First the Conservatives said they would cut it immediately, then they said they wouldn't cut it immediately very much, then they warned us that the sky would fall in if no action was taken. It is utterly incoherent.

As far as I can divine, there is now little to separate the position of the two main parties on first-year deficit action – and little beyond rhetoric on the longer-term, four-year plan. The December Pre-Budget Report projected a fall in the deficit from 12.6 per cent of GDP in 2009-10 to 4.4 per cent by 2014-15. The Conservative Party says it will reduce "in large part" the "structural" budget deficit. "Structural deficit" is not a term the Treasury employs, but is probably intended to define that core deficit that would persist through the business cycle. The distinction between the two is, at best, elastic.

As for Mr Brown, at least he has a well-tested durability, bordering on indestructibility. He has substance, where David Cameron does not. And this is a time when we need a Mr Tough, not a Mr PR Smoothie. We may weary of the dour Brown presentation, that dropping jaw and unconvincing smile. But a Brown government under the tight strictures of financial markets may be no less credible in economic management than a Conservative Party that seems devoid of big ideas and all over the place with the little ones that it has.

So what is it Mr Darling could do to boost his party's credibility and further narrow the Tory lead? Here are ten touch points I will be looking for in the Budget and which, if presented with power and conviction, could have a formidable influence on the formal election campaign.

First, he needs to take action to address unemployment in the 18-24 age group with a combination of training programmes and support for private sector apprenticeships.

Second, he should target tax breaks for small business and investment in innovation – the key driver of economic recoveries. The energy sector (renewables and offshore wind), medical firms and bioscience are critical areas.

He should keep the small companies corporation tax rate at 21 per cent, delaying a planned increase to 22 per cent until 2011-12.

He should introduce, to ringing cheers I'm sure, a statutory residence test for "non-doms". Let's be sure people who say they live here really do so.

Fifth, he should make the bank bonus tax permanent and broaden it to include all 1 million-plus pay packages.

He should raise the basic state pension via a pension credit scheme.

He should announce a minimum 5bn of further efficiency savings and waste reduction in government and local authority administration. Examples of "squitter and fritter" still abound. Nor should the NHS be ring-fenced from this exercise. This should be accompanied by more details of the programme to halve the budget deficit in four years. Make it sound credible and do-able, not just another forgettable target.

He should set new inflation and growth targets for the Bank of England, and reform of the monetary policy committee proceedings to include monitoring of house prices. Never again should we let an asset bubble grow under the very eyes of those entrusted to avoid such bubbles.

He should bring capital and income taxes more into line.

Finally, he could pre-announce plans for progressive increases in alcohol duty and commit some of the proceeds towards alcohol education programmes. This has been a blight on our national life long enough.

Little of this cuts to the heart of the massive deficit reduction problem we face. But a Budget on these lines would help recovery where it matters while a firm commitment to debt paydown, backed by real action as outlined in year one, would boost the government's credibility and leave the Conservatives more tongue-tied than they already are.

For Labour stalwarts and the SNP who say we should resist all and any cutbacks, it's time to get real: from next month the annual bill for debt interest alone – this with no allowance for capital repayment – will be 44bn. That will cut into the budgets of every spending department.

History tells us that it is never too late to cut debt and deficits, but that the cost of delay keeps going up. Thus, a Budget that seemed a few weeks ago to be a deadly trap for Labour could be turned into a positive election plan.